One industry, one voice
Jun 4, 2015
Maarten Wetselaar, Shell Executive Vice President for Integrated Gas, calls for gas sector companies to come together and speak with a united voice. Featured in the World Gas Conference edition of the Petroleum Economist.
The American industrialist Henry Ford once said that ‘coming together is a beginning; keeping together is progress; working together is success.’ The gas industry already comes together regularly, at events like the World Gas Conference (WGC).
But now the industry needs to work together more. Companies in the sector need to do a better job of engaging with governments, other industries and civil society to ensure that their voice is heard often and clearly. They need to help shape the debate about the future of the world’s energy landscape.
Rising demand, fewer emissions
It’s a critical time for the gas industry’s voice to come to the fore, as the world grapples with the challenge of meeting rising energy demand while cutting greenhouse gas emissions. This demand, according to the International Energy Agency (IEA), is expected to grow 37% in 2040. It comes from a global population increasing by around 73 million a year, and from an expanding middle-class seeking a better quality of life.
A report by the Intergovernmental Panel on Climate Change highlights the environmental impact of this growing energy demand. It warns that continued emissions of greenhouse gases will lead to further global warming and long-lasting climate change.
The current global energy mix, in which coal plays such a big role, is having a substantial impact on pollution levels around the globe. Pollutants include sulphur, nitrogen oxide and fine particles, as well as greenhouse gas emissions. In 2012, 7 million people died as a result of exposure to polluted air, according to the World Health Organization. That’s double previous estimates, and is equivalent to more than four times the number of people living in Manhattan.
Access to energy
The energy system faces other urgent challenges. Today, around 1.2 billion people still live without access to electricity, according to the World Bank.
Yet access to energy is something everyone deserves. A stable and affordable energy supply has a positive correlation with almost every measure of human wellbeing, from education to healthcare. Without this supply, there are no lights to study by in the evenings. No computers and no phones. No fridges to store food and medicines.
Policymakers have many issues to consider when discussing energy policies. They can agonise over the cheapest energy source. They can look for the most environmentally friendly choice. They can also debate the merits of substituting one energy source for another, as is the case in Europe.
But beyond these real concerns is the reality that there’s no electricity available for one in every six people living on the planet. Giving access to those without, at the same time as meeting rising demand and addressing climate change, will require multiple sources of energy.
The world also needs pragmatic thinking. It’s important to keep a sense of realism, especially when it comes to climate change. I often hear views which ignore the fact that energy is fundamental to the personal and professional lives of the world’s citizens.
Renewable sources of energy will be fundamental in the transition to a lower-carbon future. But even as their presence grows, the world will still need other energy sources because growth in renewables also presents challenges. These include issues around intermittency, availability, volume, storage, system stability, integration and investment costs.
Ultimately, there’s the risk that an unreliable and unaffordable energy system evolves. Here’s where natural gas comes in.
Role of gas
Natural gas is abundant. There are enough recoverable natural gas resources to last around 230 years at current levels of consumption, according to the IEA. It is also versatile: a gas-fired plant takes much less time to start and stop than a coal-fired plant. This flexibility makes gas an ideal back-up for other variable energy sources like solar and wind power.
Gas is the cleanest-burning fossil fuel, producing less than half the carbon dioxide (CO2) and just one tenth of the air pollutants that coal does when burnt to generate electricity. With fossil fuels making up 80% of the energy mix, and expected to be the dominant energy source for decades to come, there is enormous potential to reduce short- term CO2 emissions and air pollution by using gas instead of coal in power generation.
Gas is now so widely available that it can also help countries deal with short-term supply disruptions. In the aftermath of the Fukushima disaster, for example, Japan relied on liquefied natural gas (LNG) to make up much of its lost electricity supply after its nuclear reactors shut down.
In some cases, the cost of producing gas is now cheaper than coal. IEA analysis, for example, states that the investment cost of the most efficient coal plant is $3,700 per kilowatt, compared with $1,100 for the most efficient gas-fired plant. Gas-fired power becomes even more competitive when you include the long-term costs associated with climate change and the impact of air pollution on both people and the environment.
Gas also has a growing number of uses, which I discuss during a strategic panel session at the WGC on 3rd June. It’s traditionally been used to heat and light homes and businesses, as well as to power industries. But other markets are opening up, including the use of LNG as an alternative to diesel and heavy fuel oil in transport. If all heavy transport switched to LNG, for example, it would consume over twice the current global annual supply of LNG.
Although using LNG to power transport is still an emerging sector, it’s grown over the last few years. China is leading the way with more than 80,000 heavy-duty trucks powered by LNG. For its part, in 2013 Shell acquired a Norwegian company which provides LNG fuel for ships and industrial customers. We plan to be the first customer to use the new LNG transport infrastructure at the Port of Rotterdam in the Netherlands.
The world needs robust and stable policies and regulatory structures to realise the advantages of gas. These policies won’t just benefit the gas industry. They’ll also benefit customers, who are prepared to choose gas as a cleaner, more flexible fuel but cannot do so unless governments create an attractive environment for long-term investment in gas infrastructure.
One important step for policymakers is to introduce well-implemented carbon pricing systems. This will encourage the switch to cleaner-burning natural gas to generate electricity. Well-implemented carbon pricing systems have the potential to promote energy efficient and low-carbon technologies, including renewables.
Carbon pricing could also help accelerate the development of carbon capture and storage technology, which has the potential to remove up to 90% of CO2 emissions from power generation. Shell recognises the importance of CCS technology and will start operating its first CCS project in Alberta, Canada, later this year. The project will capture up to 1 million tonnes of CO2 a year and store it underground.
Despite all the advantages of gas, it seems that some governments are still not considering the full range of factors when choosing their energy policies. These include energy security, cost and competitiveness, the environment, health and access to energy. Why, for example, are some European countries, like Germany, still choosing coal over gas?
To date, the gas industry has inadequately engaged with governments in the policy debate. This must change, because government policy and national politics, not market dynamics, will drive the long-term energy mix.
It’s critical that companies in the gas sector do more than come together. They must work together too, and speak with one united voice. If they fail to do so, their individual voices risk drowning each other out.